Nomi says there are three flash-points the
Davos crowd should be watching in 2019. Here are the details…Last
week, the global elite descended private jets to their version of winter
ski-camp – the lifestyles of the rich and powerful version. The World Economic Forum’s (WEF) five-day
annual networking extravaganza kicked off in the upscale ski resort town of
Davos, Switzerland.
Every year, the powers-that-be join the WEF, select a theme,
uniting some 3000 participants ranging from public office holders to private
company executives to the few organizations that truly do help fix the world
that they mess up. This year’s theme is “Globalization 4.0”, or the
digital revolution. The idea being, the potential tech take-over of jobs, and
what wealthier countries are doing to lesser developed ones in the process.
While the topic might be focused on the future, the present is
just as troubling, if not more so, than the future. Such is the
disconnect between real people and corporations. That’s what the estimated 600,000 Swiss Franc membership
to be a part of the WEF constellation gets you as a CEO at the Davos table.
Government leaders like German Chancellor Angela Merkel,
Brazil’s president, Jair Bolsonaro and Chinese Vice President, Wang Qishan are
in attendance this week. Business leaders like Microsoft co-founder Bill Gates
and JPMorgan Chase CEO, Jamie Dimon will also take part in the festivities.
Yet, even though the various leaders will likely promote their
achievements, what’s lurking behind the pristine snowcapped Alps, is a dark
foreboding of a less secure world. Nearly every major forecast from around the
world is projecting an economic slowdown. As one Bloomberg article reports, “companies are the
most bearish since 2016 as economic data falls short of expectations and
political risks mount amid an international trade war, U.S. government shutdown
and Brexit.”
The list of non-attendees includes U.S. President Donald Trump,
UK Prime Minister Theresa May and French President, Emmanuel Macron. They are
too busy dealing with complex political problems in their own government
institutions and domestic home fronts to make the trek.
Below is a breakdown of the three flashpoints that the Davos
crowd should be watching in 2019:
Economic Growth Will Slow
Signs of slowing global economic growth are increasing. We’re
seeing that in both smaller emerging market countries and larger, more complex
ones. Weaker-than-anticipated data from the U.S., China, Japan and Europe are
stoking worries about the worldwide outlook for 2019.
Many mainstream outlets are beginning to understand the turmoil
ahead. Goldman Sachs, my old firm, is predicting an economic slowdown in the
U.S. And the International Monetary Fund (IMF) has revised downward its 2019 U.S. growth
prediction to 2.5% from 2.7% from 2018. It believes that the U.S. will be
negatively impacted by the economic slowdowns of American trade partners and
that the 2020 slowdown could be even “sharper” as a result.
The IMF also points to pressure from ongoing trade tensions
between the U.S. and China and growing dysfunction between the U.S. and other
major trading partners, such as Europe.
Because the world’s economies have become increasingly
interdependent, problems in one economy can have widespread consequences. We
learned this once before: the collapse of U.S.-based investment bank, Lehman
Brothers, triggered a greater international banking crisis in 2008. That sort
of connectivity has only grown. The reality is that we may now face even greater
threats than forecast so far, which could lead to another financial or credit
crisis.
It is likely that China could be ground zero for a global
economic slowdown. Recent dataout of China indicates that much
global GDP and trade activity that should normally be in the first quarter (Q1)
of 2019 was pulled forward into Q4
2018 to “beat” the tariff increase.
It’s likely that the same phenomenon could happen in the U.S. If
this trend does snowball, you should expect to see rapidly deteriorating
economic numbers arriving in the months ahead.
Debt Burdens Will Worsen
No matter how you slice it, public, corporate and individual
debt levels around the world are at historical extremes. Household debt figures
from the New York Federal Reserve noted that U.S. household debt (which
includes mortgage debt, auto debt and credit card debt) was hovering at around
$13.5 trillion. That debt has risen for 17 straight quarters.
What is different this time is that current levels are higher
than just before the 2008 financial crisis hit.
In addition, global debt reached $247 trillion in
the first quarter of 2018. By mid-year, the global debt-to-GDP ratio had
exceeded 318%. That means every dollar of growth cost more than three dollars
of debt to produce.
After a decade of low interest rates, courtesy of the Fed and
other central banks, the total value of non-financial global debt,
both public and private, rose by 60% to hit a record high of $182 trillion.
In addition, the quality of that debt has continued to
deteriorate. That sets the scene for a riskier environment. Over on Wall Street
they are already disguising debt by stuffing smaller riskier, or “leveraged”
loans into more complex securities. It’s the same disastrous formula that was
applied in the 2008 subprime crisis.
Now, landmark institutions like Moody’s Investors Service and
S&P Global are finally sounding the alarm on these leveraged
loans and the Collateralized Loan Obligations (CLOs) that Wall Street is
creating from them.
CLO issuance in the U.S. has risen by more than 60% since 2016.
Unfortunately, it should come as no surprise that Wall Street is now proposing
even looser standards on these risky securities. The idea is that the biggest
banks on Wall Street can actively repackage risky leveraged loans into dodgy
securities while the music is still playing.
If rates do rise, or economic growth deteriorates, so will these
loans and the CLOs that contain them, potentially causing a new credit crisis
this year. If the music stops, (or investors no longer want to buy the CLOs
that Wall Street is selling) look out below.
Corporate Earnings Will Be Lower
With earnings season now underway, we can expect a lot of gaming
of results in contrast to earlier reports and projections. What I learned from
my time on Wall Street is that this is a standard dance that happens between
financial analysts and corporations.
What you should know is that companies will always want to
maximize share prices. There are several ways to do that. One way is for
companies to buy their own shares, which we saw happen in record numbers
recently. This process was aided by the savings from the Trump corporate tax
cuts, as well as the artificial stimulus that was provided by the Fed through
its easy money strategy.
Another way is to reduce earnings expectations, or fake
out the markets. That way, even if earnings do fall, they look
better than forecast, which gives shares a pop in response. However, that pop
can be followed by a fall because of the lower earnings.
The third way is to simply do well as a business. In a slowing
economic environment, however, that becomes harder to do. Plus, it’s even more
difficult in today’s environment of geopolitical uncertainty, as a multitude of
key elections take place around the world in the coming months.
These three concerns were central in conversation in Davos.
Expect global markets to be alert to the comments coming from the Swiss
mountain town. Severe dips and further volatility could be ahead if any gloomy
rhetoric streams from the Davos gathering.
How Will the Fed React?
Ready to help, is the answer. This month, yet another top
Federal Reserve official noted that economic growth could be slowing down. That
would mean the Fed should, as Powell indicated, switch from its prior fixed
plan of “gradually” raising interest rates to a more “ad-hoc approach.”
Indeed, Federal Reserve Bank of New York President John
Williams, used Chairman Powell’s new buzz phrase, “data dependence,” to
indicate that the Fed would be watching the economy more. While he didn’t say
it explicitly, it has become largely clear that the markets are determining Fed
policy.
Based on my own analysis, along with high-level meetings in DC,
I see growing reasons to believe the Fed will back off its hawkish policy
stance. As we continue to sound the alarm, there are now a myriad of reasons
including trade wars, slowing global economic conditions and market volatility.
Traders are now assigning only a 15% chance of another
rate hike by June. Just three months ago, those odds were 45%.
Watch for even more market volatility with upward movements
coming from increasingly dovish statements released by the Fed and other
central banks. Expect added downward outcomes from state of the global economy
along with geo-political pressures.
Apocalyptic Debt Crisis In America: 63 Of
America’s Largest 75 Cities Are COMPLETELY BROKE
A new and horrifying report details the reason
why 63 of America’s largest cities are completely broke…The
debt crisis in the United States of America has reached apocalyptic
proportions. A new and horrifying report out details the reason why 63 of
America’s largest cities are completely broke: debt and overspending.
According to a recent analysis of the 75 most populous cities in
the United States, 63 of them can’t pay their bills and the total amount of
unfunded debt among them is nearly $330 billion. Most of the debt is due to unfunded
retiree benefits such as pension and health care costs. That means those
depending on that money, likely won’t see a dime of it.
“This year, pension debt accounts for $189.1 billion, and other
post-employment benefits (OPEB) – mainly retiree health care liabilities –
totaled $139.2 billion,” the third annual “Financial State of the Cities”
report produced by the Chicago-based research organization, Truth in
Accounting (TIA), states. TIA is a nonprofit, politically
unaffiliated organization composed of business, community, and academic leaders
interested in improving government financial reporting.
“Many state and local governments are not in good shape,
despite the economic and financial market recovery since 2009,” Bill
Bergman, director of research at TIA, told Watchdog.org.
The top five cities in the worst financial shape are New York
City, Chicago, Philadelphia, Honolulu, and San Francisco. These cities, in
addition to Dallas, Oakland, and Portland, all received “F” grades. In New
York City, for example, only $4.7 billion has been set aside to fund $100.6
billion of promised retiree health care benefits. In Philadelphia, every
taxpayer would have to pay $27,900 to cover the city’s debt. In San Francisco,
it would cost $22,600 per taxpayer.
By
the end of Fiscal Year 2017, 63 cities did not have enough money to pay all of
their bills, the report states, meaning debts outweigh revenue. In order to
appear to balance budgets, TIA notes, elected officials “have not included the
true costs of the government in their budget calculations and have pushed costs
onto future taxpayers.” –Hartford City News
Times
To say that more simply: your children have been sold into debt
slavery and owned by the governments; both local and federal. The government is
officially punishing the unborn for their inability to handle money. What a
time to be alive…
One major problem area TIA identifies is that city leaders are
lying. (What a shock! A lying politician…) These political masters have
acquired massive debts despite the balanced budget requirements imposed on them
by scamming the public and enslaving them.
“Unfortunately, some elected officials have used portions of the
money that is owed to pension funds to keep taxes low and pay for politically
popular programs,” TIA states. “This is like charging earned benefits to a
credit card without having the money to pay off the debt. Instead of funding
promised benefits now, they have been charged to future taxpayers. Shifting the
payment of employee benefits to future taxpayers allows the budget to appear
balanced, while municipal debt is increasing.”
It’s only a matter of time until this system built on debt and
theft comes crashing to the ground. How prepared are you?
The 2 Things Holding
the U.S. Dollar Together Say Downside Is Ahead
Government’s Reckless Spending
Could Result in Lower U.S. Dollar
If you
think holding U.S. dollars is a great investment, think again. The case against
keeping the greenback as an investment continues to get stronger.
Before
going into any details, know this: a currency is only as strong as its
government and economy. If both of these factors aren’t sustainable, the
currency faces headwinds.
As it stands, the U.S. government is relatively unstable and the
economy is moving in the wrong direction. This is bad news for the U.S. dollar.
First,
assessing the U.S. government…
The
federal government is having a hard time getting its act together. It continues
to spend without remorse.
The U.S.
national debt stands at well over $21.0 trillion. For the coming decades, there
isn’t really a sign of a balanced budget or surplus. The U.S. government is
only expected to register deficits.
So, with
ballooning budget deficits, the U.S. national debt could soar much higher. It’s
not an out-of-this-world idea that we’ll see the national debt soar to over
$30.0 trillion within a decade.
Right now,
the U.S. federal government is the most indebted government in the world when
looking at nominal value. No other government comes even remotely close to its
$21.0-trillion figure. When the debt hits $30.0 trillion, will the creditors to
the U.S. government question the country’s ability to pay that debt back?
Out-of-control
spending by the U.S. government could be deadly for the U.S. dollar.
But this
is not all. Over the past few years, the U.S. government hasn’t been able to
get things done. There’s too much noise and deadlock. This is not good for the
U.S. dollar either. The longer the standoff persists, the bigger the headwinds
will be for the greenback.
Recession Ahead for the U.S. Economy? This Could Be
Bad for the Greenback
Second,
looking at the U.S. economy…
The
economy had a solid run in the past few years, but there are risks brewing. A
recession could be on its way in the coming quarters.
Just pay
attention to the yields on long-term and short-term U.S. bonds. Whenever the
difference between these yields edges close to zero, it’s one of the surest
signs that a recession could be near. This difference in bond yield has
predicted the last two recessions with great accuracy.
With that
said, the current difference in yield between the 10-year and two-year U.S.
bonds is awfully close to zero, at 0.21%.
U.S. Dollar Outlook: Don’t Ignore Gold
Dear
reader, the two things that hold any currency together are saying that the U.S.
dollar could decline in value in the coming quarters. It’s not sustainable at
the current levels.
I really
don’t think we will see a collapse-like scenario anytime soon with the U.S.
dollar, but keeping it as an investment could result in gradual losses.
Also, I am
paying close attention to gold. The yellow precious metal is a great hedge
against currency depreciation. It could help investors preserve wealth as the
U.S. dollar falls.
0 comments:
Post a Comment